CESifo World Economic Survey August 2013

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CESifo W

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12, No. 3

Additional CESifo Journals

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2013

W

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World economic climate clouds over slightly

Economic expectations remain positive

Different price trends

US dollar expected to rise

Long-term interest rates likely to rise

Tax administration and tax competition

between countries

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(Deputy Head of Business Cycle Analysis and Surveys)

Prof. Dr. Timo Wollmershäuser, e-mail

wollmershaeuser@ifo.de

(Senior Economist, Coordinator of the Research Group Monetary Macroeconomics)

CESifo World Economic Survey ISSN 1613-6012

A quarterly publication on the world economic climate

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Ifo World Economic Survey

The survey is jointly conducted by the Ifo Institute and the Paris-based International

Chamber of Commerce (ICC).

Regions

World Economy: Heterogeneous development across continents

Western Europe: Economic climate improves

North America: Economic recovery gains momentum

Eastern Europe: Economic climate index climbs further

CIS: Economic climate indicator falls further

Asia: Economic climate indicator’s rise ends abruptly

Oceania: Economic climate brightens

Latin America: Economic climate indicator drops sharply

Near East: Economic climate remains friendly

Africa: No unified economic trend

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Notes

The World Economic Survey (WES) assesses worldwide economic trends by polling transnational as

well as national organisations worldwide on current economic developments in their respective

coun-tries. Its results offer a rapid, up-to-date assessment of the economic situation prevailing around the

world. In July 2013, 1,180 economic experts in 123 countries were polled.

WES is conducted in co-operation with the International Chamber of Commerce (ICC) in Paris.

Methodology and evaluation technique

The survey questionnaire focuses on qualitative information: assessments of a country’s general

eco-nomic situation and expectations regarding key ecoeco-nomic indicators. It has proven a useful tool, since it

reveals economic changes earlier than conventional business statistics.

The individual replies are combined for each country without weighting. The grading procedure

con-sists in giving a grade of 9 to positive replies (+), a grade of 5 to indifferent replies (=) and a grade of 1 to

negative (-) replies. Overall grades within the range of 5 to 9 indicate that positive answers prevail or that

a majority expects trends to increase, whereas grades within the range of 1 to 5 reveal predominantly

negative replies or expectations of decreasing trends.

The survey results are published as aggregated data. The aggregation procedure is based on country

classifications. Within each country group or region, the country results are weighted according to the

individual country’s exports and imports as a share of total world trade.

CES – Center for Economic Studies – is an institute within the department of economics of Ludwig

Maximilian University, Munich. Its research, which focuses on public finance, covers many diverse

areas of economics.

The Ifo Institute is one of the largest economic research institutes in Germany and has a three-fold

orientation: to conduct economic research, to offer advice to economic policy-makers and to provide

services for the research and business communities. The Ifo Institute is internationally renowned for

its business surveys.

CESifo is the name under which the international service products and research results of both or-

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3.33.8 4.1 2.6 3.6 4.7 2.4 2.9 3.7 4.9 4.55.3 5.4 2.8 5.2 -0.6 3.9 3.1 30 40 50 60 70 80 90 100 110 120 130 140 150 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 Real GDP

ECONOMIC GROWTH AND IFO ECONOMIC CLIMATE

FOR THE WORLD

% change from previous year Index 2005=100

(left-hand scale) (right-hand scale)

*) Arithmetic mean of judgement of the present and expected economic situation.

Sources: IMF, World Economic Outlook April 2013 - Update July; Ifo World Economic Survey (WES) III/2013. Ifo World Economic Climate*

G E

-

-3.1 Figure 1

WORLDECONOMY

Source: Ifo World Economic Survey (WES) III/2013.

at present by the end of the

next 6 months good/ better satisfactory/ about the same bad/ worse 06 01 02 03 04 05 07 08 09 10 11 12 13 Figure 2

The Ifo World Economic Climate Indicator fell slightly in the third quarter. Both the present economic situation and economic expectations deteriorated somewhat com-pared to the previous survey. Assessments of the pre-sent situation remain unfavourable. All in all economic expectations are positive (see Figures 1 and 2). The indicator fell to its level of the first quarter 2013, 94.1, which is slightly below its long-term average of 96.0 (1997–2012). The recovery in the world economy is not really making any headway (see Box 1). Nevertheless, the signs of a stabilization of the world economy remain valid. Across different economic regions the sentiments developed heterogeneously.

Heterogeneous development across continents

Since the end of 2012 the world economy has stabilized at a relative-ly low level. As a result, world in-dustrial production and world trade hardly lost any impetus in the first half of 2013, after a steady drop in their growth rates over the previous two years. The stabilization was primarily due to relatively robust economic developments in the USA,

Japan and the key emerging

econo-mies, which offset the recession in the euro area. The pace of world growth should pick up moderately in the months ahead. Similar indi-cations are also provided by numer-ous other early indicators and sen-timent indicators besides the World Economic Survey.

In Asia we observed the largest drop in the economic climate, in contrast to the largest increase in the previ-ous quarter. The experts surveyed were less satisfied with the current situation. Moreover, optimism re-garding the future outlook was clear-ly dampened. These results were mainly driven by developments in

China and India, where both indicators dropped clearly.

Due to economic policy actions, the WES experts from

Japan assessed the current situation more favourably

again and are still optimistic about upcoming develop-ments. The second largest drop in the economic climate was reported for Latin America. The indicators for both current assessments and expectations fell. After one year of positive results the outlook turned slightly nega-tive again. Brazil has been the focus of neganega-tive reports in recent months and this is reflected in the survey re-sults. The assessment of the current situation fell to its lowest level for over 10 years. There is no country in

Latin America where both components have risen this

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econom-Box 1

Ifo Economic Clock and the Ifo World Economic Climate

A glance at the Ifo Economic Clock showing the development of the two components of the economic climate index over the last six years can provide a useful overview of the global, medium-term forecast. The business cycle typically proceeds clock-wise in a circular fashion, with expectations leading assessments of the present situation.

According to the July survey, the Ifo indicator for the world economic climate fell slightly. Both assessments of the current economic situation and the six-month eco-nomic outlook deteriorated somewhat. The indicator showed a slight downwards movement in the “recovery” quadrant. The recovery in the world economy is not really making any headway.

Source: Ifo World Economic Survey (WES) III/2013.

The Ifo World Economic Climate is the arithmetic mean of the assessments of the current situ-ation and economic expectsitu-ations for the next six months. The correlsitu-ation of the two climate components can be illustrated in a four-quadrant diagram (“Ifo Business Cycle Clock”). The assessments on the present economic situation are positioned along the abscissa, the responses on the economic expectations on the ordinate. The diagram is divided into four quadrants, de-fining the four phases of the world business cycle. For example, should the assessments of the interviewed experts on the present situation be negative, but the expectations became positive, the world business cycle is in an upswing phase (top left quadrant).

Ifo World Economic Climate Recovery / Upswing

- Present economic situation: still bad, but improving - Economic expectations: positive

Trough / Recession

- Present economic situation: bad

- Economic expectations: negative

Cooling-down / Downswing

- Present economic situation: still good, but deteriorating - Economic expectations: negative

Consolidated Upturn / Boom

- Present economic situation: good - Economic expectations: positive 3 4 5 7 8 9 improvement deterioration 1 2 3 4 6 7 8 9 bad good Present economic situation 5 1 2 Economic expectations for the next six months

US sub-prime credit crisis III/2006 I/2008 III/2007 III/2008 I/2006 II/2010 IV/2009 II/2009 I/2009 I/2011 III/2011 I/2012 IV/2012 III/2013

ic climate improved. In Europe and the euro area this trend was mainly driven by a more optimistic outlook for future developments. Although the assessment of the current situation also improved, it is still assessed as “bad” in many countries, including France, Spain,

Portugal or Italy. It will be interesting to see whether

this optimism is reflected in actual economic outcomes. In North America the surveyed experts are increasingly confident about future developments. Furthermore, they are more satisfied with their current situation, which all points to a continued recovery in this region. The eco-nomic climate indicator rose in both Africa and the Near

East. This was mainly due to a more optimistic outlook.

The price increase expected for 2013 remains un-changed versus the last quarter at 3.2%. While WES experts expect short-term interest rates to remain large-ly stable on average over the next six months, a higher number of them expect long-term interest rates to rise.

On worldwide average, econom-ic experts expect to see moderate value growth in the US dollar over the next six months.

It remains to be seen in future sur-veys whether the deterioration of the economic climate in Asia and

Latin America is a temporary

phe-nomenon, and if countries from these areas remain on a growth path.

Despite the small decrease in the World Economic Climate, the re-sults point to a moderate upturn in the world economy over the next six months. Insofar as a standard scenario materializes, i.e. no seri-ous unexpected crisis emerges, the pace of the world economy should pick up over the rest of the present and the upcoming year. That said, no sharp acceleration is expected. The restructuring of the crisis-af-flicted member states of the euro

area, as well as the necessary

debt reduction, is expected to curb growth in the most advanced econ-omies. All in all, world gross do-mestic product should increase to a moderate positive growth rate this year and a higher one next year. The same holds for the world trade.

Western Europe: Economic climate improves The economic climate index for Western Europe im-proved somewhat to 102.2 in July, and is approaching its long-term average of 104.7 between 1997 and 2012 (see Figure 3). While the present economic situation was once again assessed as unfavourable, the economic outlook for the next six months is slightly more posi-tive than in the previous survey (see Figure 4). The same pattern applies for the euro area, where the indicator lies at 102.3, or somewhat more below its long-term average of 108.0 (1997–2012). Even although assess-ments of the present economic situation improved somewhat compared to the previous survey, economic sentiment remains subdued in the majority of euro

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99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 40 50 60 70 80 90 100 110 120 130 NORTHAMERICA Economic Climate* 2005=100

Source: Ifo World Economic Survey (WES) III/2013.

*) Arithmetic mean of judgement about the present and expected economic situation.

long-term average 1997 – 2012 (91.3) Figure 3 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 40 50 60 70 80 90 100 110 120 130 ASIA Economic Climate* 2005=100

Source: Ifo World Economic Survey (WES) III/2013.

*) Arithmetic mean of judgement about the present and expected economic situation.

long-term average 1997 – 2012 (90.0)

countries of Cyprus, Greece, Italy, Portugal and Spain (see Figures 5a and 5b). In Belgium, France, Ireland,

Netherlands and Slovenia WES experts also regard

the present economic situation as weak, despite some slight – in the case of Ireland even strong – upwards

revision compared to the survey in April. With regard to the economic expectations for the next six months, some improvement is expected in nearly all of these above mentioned countries. However, coming from very low levels, the recovery will progress only step by step. Experts in Cyprus, on the other hand, expect the situation to deteriorate further. The majority of WES experts in

Greece, Netherlands, Portugal and Spain expect the trade balance in

their countries to improve, as ex-ports outpace imex-ports. Some nega-tive impact could have the strongly constraint supply of bank credit to firms, which has been observed in the euro crisis countries of Italy,

Ireland, Portugal, Spain, Greece as

well as in Slovenia (see Table 1). In Austria, Luxembourg and

Slovakia the present economic

situa-tion did not change compared to the previous survey and remains under the satisfactory line. With regard to future economic developments, WES experts in Luxembourg and

Slovakia have become more

posi-tive, while the economic outlook in Austria deteriorated somewhat compared to the previous survey, but remains positive on the whole. The major downwards revision took place in Finland. Here, WES experts changed their unfavourable assess-ments of the present economic situ-ation and took a very sceptical view. No major economic improvements to the current weak situation are expected over the next six months.

Germany and Estonia are the only

countries in the euro area in which a positive economic climate contin-ues to prevail. In both countries the economic experts surveyed report a favourable present economic situation, despite a slight downwards revision compared to the previous survey. Expectations, in turn, are now more positive than three months ago and point to a continuation of the presently good economic performance in both countries.

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 40 50 60 70 80 90 100 110 120 130 140 150 160 WESTERNEUROPE Economic Climate* 2005=100

Source: Ifo World Economic Survey (WES) III/2013.

*) Arithmetic mean of judgement about the present and expected economic situation.

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Box 2

World Economic Survey (WES) and GDP Growth in the Euro Area

The Ifo World Economic Climate for the 17 member countries of the euro area is the arithmetic mean of the assessments of the general economic situation and the expec-tations for the economic situation in the next six months. The July results are based on the responses of 307 experts. As a rule, the trend in the Ifo Economic Climate indicator correlates closely with the actual business-cycle trend for the euro area – measured in annual growth rates of real GDP (see Figure).

The Ifo Indicator for the economic climate in the euro area improved, but remains below its long-term average value. The current economic situation in the euro area brightened only slightly and remains at a low level overall. Expectations for the next six months, on the other hand, were significantly more positive than last quarter. An economic stabilization in the euro area seems to be emerging.

The current economic situation improved compared to the second quarter in most

euro area countries, but remains “poor” in the opinion of experts surveyed in France, Greece, Italy, Portugal, Spain and Cyprus. By comparison, assessments of the current

economic situation in Belgium, Ireland, Finland, the Netherlands and Slovenia are slightly better. In Austria and Slovakia assessments of the current economic situation are below the satisfactory mark. Germany and Estonia are the only countries in which economic experts reported a satisfactory to good economic situation. Expectations for the next six months continued to improve for the majority of euro area countries. The experts surveyed in nearly all euro area countries were positive about the six-month economic outlook. Slovenia and Cyprus are the only countries in which the experts surveyed expect the economic situation to continue to deteriorate.

40 50 60 70 80 90 100 110 120 130 140 150 160 170 01 02 03 04 05 06 07 08 09 10 11 12 13 -6.0 -5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Ifo Economic Climate* for the Euro area (right-hand scale)

ECONOMIC GROWTH AND IFO ECONOMIC CLIMATE

FOR THE EURO AREA

Sources: Eurostat, Ifo World Economic Survey (WES) III/2013.

% change over previous year Index 2005=100

*) Arithmetic mean of judgement of the present and expected economic situation. Real GDP

(left-hand scale)

Outside the euro area, in Norway and Switzerland, the economic climate is far friendlier. While in Norway assessments of both the present economic situation and expectations deteriorated somewhat, they were up-wardly revised in Switzerland. Despite these different developments, in both countries a highly favourable economic situation still prevails along with a positive six-month economic outlook. In Iceland, Monaco and

Sweden the present economic situation was assessed as

satisfactory and is expected to remain so for the next six months. In Denmark and the United Kingdom the economic situation is again regarded as unfavourable, despite some slight improvement compared to the vey in April. For the next six months, the experts sur-veyed have become far more positive and expect some

improvements in future economic developments.

North America: Economic recovery gains momentum In July, the economic climate indi-cator in North America continued its rise, with renewed impetus after its side-movement three months ago. At 93.7 the economic climate index surpassed its long-term average of 91.3 (1997–2012). Assessments of both components of the economic climate, namely the present situ-ation and expectsitu-ations, are more positive than they were three months ago (see Figures 3 and 4). In the United States, assessments of the present economic situation nearly reached the satisfactory lev-el, thanks to the improvement over the previous survey. Economic ex-pectations for the next six months were also clearly upwardly revised and point to further improvements in economic performance (see Figure 6). Thus, the recovery in the US seems to be gaining ground. In Canada, appraisals of the cur-rent economic situation improved sharply over the previous survey and are observed as favourable. The economic prospects are slight-ly more positive than three months ago and point to a further improvement in economic performance over the next six months.

Eastern Europe: Economic climate index climbs further

In Eastern Europe the economic climate indicator con-tinues its rise which started in early 2013. The rise in the indicator was primary the result of brighter economic expectations. Assessments of the present economic situ-ation, in turn, remained stable at an unfavourable level (see Figures 4 and 7). At 74.8 (preceding survey: 70.8) the index is still located well below its long-term aver-age of 85.4 (1997–2012).

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01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

ASIA Economic Situation by the end of the

next 6 months good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present LATIN AMERICA Economic Situation good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013. CIS Economic Situation

Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, Ukraine, Uzbekistan

good/ better satisfactory/ about the same bad/ worse at present

by the end of the next 6 months

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

EASTERN EUROPE Economic Situation

by the end of the next 6 months good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

WESTERN EUROPE Economic Situation

by the end of the next 6 months good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

NORTH AMERICA Economic Situation

by the end of the next 6 months good/ better satisfactory/ about the same bad/ worse

S

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Figure 4

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Latvia and Lithuania are also currently among the

re-gion’s top performers. In both countries the present eco-nomic situation is rated as favourable, and to an even higher degree than in the previous survey. For the six-month economic outlook WES experts remain fairly confident in these countries. In Bulgaria and Romania the current situation – despite some improvement – was described by economic experts all in all as unfavour-able. In both countries, capital expenditure and private consumption are performing weakly at present. With regard to future economic developments over the next six months, WES experts in Bulgaria have become cautious, while expectations in Romania brightened compared to the previous survey and point to a slight economic improvement. In the Czech Republic and

Poland more respondents than in the previous survey

see the current economic situation as weak. In Hungary WES experts also assess the situation as unfavourable on average. In all of these countries, a slight improve-ment is expected within the next six months, including a strengthened export sector in Hungary and Poland. In

Croatia, the new member of the European Union since

July, no changes for the better were recorded: indeed, all of the economic experts surveyed unanimously attested to a bad economic situation for their country for the fourth time in succession. They expect their economy to remain at its current low level for the next six months. In Eastern European countries outside the EU, assess-ments of the present economic situation remained sta-ble at their low levels. In Albania, Macedonia as well as even unanimously in Bosnia and Herzegovina and

Serbia, WES experts assessed the current economy as

weak. The economic outlook for the next half year only brightened up slightly in Albania. In all other countries, the economic expectations are clouded and don’t point to any substantial economic improvement over the next six months.

CIS: Economic climate indicator falls further The economic climate indicator for the CIS coun-tries covered by WES (Russia, Belarus, Ukraine,

Kazakhstan, Kyrgyzstan, Uzbekistan and Armenia) fell

due to a less favourable economic outlook, which is now on the cautious side. Assessments of the present eco-nomic situation remain unchanged and are again seen as unfavourable (see Figure 4).

In Russia, assessments of both the present economic sit-uation and, to an even greater degree economic

expec-tations, deteriorated compared to the previous survey. Here, the economic situation is rated as unfavourable. Capital expenditure in particular is considered weak, while private consumption is performing satisfacto-rily. With regard to the six-month economic outlook, WES experts have become sceptical. In the Ukraine and Kyrgyzstan the current economic situation was again assessed as unfavourable. In the Ukraine, eco-nomic expectations have been downgraded sharply: the majority of WES experts expect their economy to deteriorate further by the end of the next six months. In contrast, in Kyrgyzstan, some improvement of the economic situation is likely, according to the economic experts surveyed. In Belarus, Georgia1, Kazakhstan and Uzbekistan a satisfactory present economic situa-tion prevails, which is expected to persist for the next six months. In Armenia, assessments of the present eco-nomic situation turned from satisfactory to unfavour-able, according to WES experts. No major changes for the better are expected for the next six months.

Asia: Economic climate indicator’s rise ends abruptly

The economic climate indicator in Asia started to fall back to its long-time average of 90.0 (1997–2012). After reaching its highest value since late 2010 at 106.1 in April, the downturn to 89.5 is very pronounced. The de-crease in the indicator was mainly driven by significant-ly less positive assessments of the six-month economic outlook. Assessments of the current economic situation also deteriorated, but only slightly.

The downturn in the Asian economic climate was main-ly the result of cooler economic sentiment in China. However, WES experts also curbed their expectations in Thailand, Taiwan and Indonesia, and to a lesser ex-tent in India and South Korea. The appraisals of the present economic situation in these countries have also been downgraded compared to the previous survey and are seen as unfavourable. The exception to this rule is

Indonesia, where despite the downwards revision, the

present economic situation still stands at a satisfac-tory level overall. In China, WES experts reported the supply of bank credit to firms as strongly constraint. In addition, legal and administrative restrictions for for-eign firms seem to be rather high at present (see Tables 1 and 2). According to the economic experts surveyed,

1 Georgia, which is not a member of the Commonwealth of

Independent States, is included in this group for reasons of geography and similarities in economic structure.

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other Asian economies like Thailand, Sri Lanka and

Indonesia are affected by a bad investment climate for

foreign firms. In Japan, the situation improved com-pared to the previous quarter, and WES experts on aver-age see the overall economy as satisfactory. Economic expectations have been revised somewhat downwards; however, as they reached an optimistic level in the pre-vious survey, they are still in highly positive territory. Exports in Japan in particular are likely to strengthen further over the next six months. In Bangladesh, Hong

Kong, Malaysia, Singapore and the Philippines a

satis-factory to favourable economic situation prevails. The economic expectations of WES experts in all of these countries point to an economic stabilization of the cur-rent good levels in the respective countries. In Sri Lanka and Vietnam the economic experts surveyed reported an unfavourable economic situation at present, and expect no change over the next six months. In Pakistan and

Papua New Guinea current economic performance was

reported to be weak. While WES experts in Papua New

Guinea do not foresee any substantial improvement in

their economy in the six months ahead, the situation in

Pakistan does look set to improve a little.

Oceania: Economic climate brightens

In Oceania, assessments of both the present economic situation and expectations are more positive and led to a slight increase in the economic climate indicator. At 103.4 the indicator exceeded its long-term aver-age (100.9, 1997–2012). However, no clear trend has emerged yet and the indicator has seen volatile fluctua-tions since early 2012. In Australia and New Zealand a favourable present economic situation persists. In

Australia, the today’s favourable situation is expected

to last for the next six months. Some weakening, howev-er, is expected in capital expenditure. Exports, in turn, will strengthen further. In New Zealand, the six-month economic outlook brightened up considerably and WES experts expressed confidence with regard to future eco-nomic developments.

Latin America: Economic climate indicator drops sharply

Besides Asia, Latin America is the second major region where the economic climate deteriorated considerably. The indicator continued to fall and stands far below its long-term average at 79.6 (1997–2012: 92.7). Both eval-uations of the present economic situation and economic

expectations decreased and are no longer positive for the region on average (see Figures 4 and 9).

The downward trend in the region was particularly pro-nounced in Brazil and Chile. In both countries assess-ments of the respective indicators were downgraded considerably. In Brazil, the current economic situation has become difficult, according to WES experts. Capital expenditure in particular is considered as weak at pre-sent. With regard to future economic developments in the months ahead, the economic experts surveyed in

Brazil changed their view from positive to sceptical.

Due to the expected reduction in exports, the trade bal-ance will deteriorate further, according to the opinion of WES experts. In Chile, the downward trend in the evaluation of the present economic situation continued, but is perceived on balance as favourable. In turn, eco-nomic expectations are now clearly negative and WES experts are pessimistic about economic performance in the near future.

In Paraguay and Peru, and to a lesser extent in

Uruguay, Ecuador and Bolivia a favourable economic

situation currently prevails. However, with regard to the six-month outlook for economic activity, there are diverging trends in the countries: while WES experts in Paraguay and Bolivia expect an economic stabiliza-tion at the current level, the economic experts surveyed in Ecuador, Peru and Uruguay expressed caution. In

Colombia, Mexico and Panama a satisfactory present

economic situation was reported by economic experts. In Colombia, economic expectations were upgraded considerably and point to further expansion. In Mexico and Panama the majority of respondents indicate that they expect economic developments to stabilise within the next six months. In Argentina, assessments of the present economic situation improved somewhat com-pared to the previous survey. However, in view of eco-nomic expectations, present ecoeco-nomic tension cannot be expected to dissipate within the next six months. WES experts assessed the investment climate as particular-ly unfavourable, especialparticular-ly given fairparticular-ly tough legal and administrative restrictions for foreign firms, and expect it to deteriorate further over the next six months. They also expressed concern that political instability will increase in the months ahead (see Tables 2 and 3). In

Guatemala, the present economic situation worsened

and is now assessed as unfavourable. No improvement in the economic development is expected over the next six months. In Costa Rica, the Dominican Republic, El

Salvador, Trinidad and Tobago, as well as in Venezuela

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current economic performance. In most of these coun-tries WES experts expect the situation to deteriorate further. In contrast, economic experts surveyed in the

Dominican Republic, are somewhat more confident

about the six-month economic outlook.

Near East: Economic climate remains friendly In the Near East the economic climate remains favour-able, and even more expressed than in the previous survey (see Figure 10). The indicator rose to 95.5 and

Box 3

Global Liquidity Conditions This box examines the provision of liquidity by the

central banks of the euro area, the United Kingdom, and the United States of America in recent times.1 Overall, the results show that the Bank of England and the Federal Reserve System have poured liquidity into their domestic financial sectors while the European Central Bank (ECB) has kept the expansion of the monetary base at a relatively moderate pace over the last five years.

In fact, since mid-2012 the amount of high-powered money provided by the ECB through open market op-erations and its outright asset purchase programmes – the Securities Markets Programme and two rounds of the Covered Bond Purchase Programme – has fallen; from July 2012 to 11 June 2013, the monetary base de-clined from 1775 billion euros to 1295 billion euros. Most importantly, a dramatic fall of 336 billion euros has been noted since 15 January 2013, reflecting banks’ ability to make early repayments of funds raised in the first and second three-year refinancing operations since the end of January and February, respectively (see Figure, top panel). Indeed, the total nominal value outstanding of longer-term refinancing operations has decreased by 308 billion euros since then.

With the ECB conducting its refinancing operations with full allotment, the main reason for the reduction in the monetary base of the euro area likely stems from the demand for liquidity, rather than banks be-ing short of eligible collateral. This is suggested by the fact that emergency loans provided by the national central banks – the Emergency Liquidity Assistance (ELA), for which banks can post collateral of lower quality than is accepted by the ECB for its refinancing operations – also declined in Greece and Ireland by 50 billion euros to 24 billion euros between January and May.

At the same time, commercial banks reduced their ex-cess liquidity holdings. Since January the total nominal value outstanding of the deposit facility has decreased by 116 billion euros; excess reserves dropped by ap-proximately 222 billion euros (see Figure, middle pan-el). In sum, the shortfall in demand and the reduction of excess liquidity has led to a significant decrease in the monetary base in the euro area over the last year.

1 This box is a slightly modified, English translation of Box 2.1.

in K. Carstensen, W. Nierhaus, T. O. Berg, C. Breuer, C. Grimme, S. Henzel, A. Hristov, N. Hristov, M. Kleemann, W. Meister, J. Plenk, L. Salzmann, K. Wohlrabe, A. Wolf, T. Wollmershäuser, and P. Zorn (2013). “Ifo Economic Forecast 2013/2014: Favourable Perspectives for the German Economy”.

While liquidity conditions in the euro area are deter-mined solely by demand for base money due to the ECB’s fixed rate full allotment policy, the Bank of England and the Federal Reserve System poured addi-tional liquidity into the financial sector via government bond purchases (quantitative easing). That is, commer-cial banks in the UK and USA received base money irrespective of their actual liquidity requirements by selling government bonds to their central bank. As a result, the monetary base in the UK and the USA in-creased from June 2008 to June 2013 by 352% and 282%, respectively. In contrast, high-powered money in the euro area increased by only 47% over the same period (see Figure, bottom panel).

0 200 400 600 800 2011 2012 2013 40 100 160 220 280 340 400 500 1 000 1 500 2 000 2 500 3 000 3 500 2008 2009 2010 2011 2012 2013 USA, in Bn. $ (left axis) Euro Area, in Bn. € (left axis) 0 500 1 000 1 500 2 000 2011 2012 2013

Global Liquidity Conditions

Sources: ECB; Bank of England; Federal Reserve.

Liquidity-Providing Operations in the Eurosystem

in Bn. €

Liquidity-Absorbing Operations in the Eurosystem

in Bn. € Monetary Base Deposit Excess Reserves Monetary Base Longer-Term Refinancing Operations UK, in Bn. £ (right axis) Asset Purchases Main Refinancing Operations

0 200 400 600 800 2011 2012 2013 40 100 160 220 280 340 400 500 1 000 1 500 2 000 2 500 3 000 3 500 2008 2009 2010 2011 2012 2013 USA, in Bn. $ (left axis) Euro Area, in Bn. € (left axis) 0 500 1 000 1 500 2 000 2011 2012 2013

Global Liquidity Conditions

Sources: ECB; Bank of England; Federal Reserve.

Liquidity-Providing Operations in the Eurosystem

in Bn. €

Liquidity-Absorbing Operations in the Eurosystem

in Bn. € Monetary Base Deposit Excess Reserves Monetary Base Longer-Term Refinancing Operations UK, in Bn. £ (right axis) Asset Purchases Main Refinancing Operations

0 200 400 600 800 2011 2012 2013 40 100 160 220 280 340 400 500 1 000 1 500 2 000 2 500 3 000 3 500 2008 2009 2010 2011 2012 2013 USA, in Bn. $ (left axis) Euro Area, in Bn. € (left axis) 0 500 1 000 1 500 2 000 2011 2012 2013

Global Liquidity Conditions

Sources: ECB; Bank of England; Federal Reserve.

Liquidity-Providing Operations in the Eurosystem

in Bn. €

Liquidity-Absorbing Operations in the Eurosystem

in Bn. € Monetary Base Deposit Excess Reserves Monetary Base Longer-Term Refinancing Operations UK, in Bn. £ (right axis) Asset Purchases Main Refinancing Operations

0 200 400 600 800 2011 2012 2013 40 100 160 220 280 340 400 500 1 000 1 500 2 000 2 500 3 000 3 500 2008 2009 2010 2011 2012 2013 USA, in Bn. $ (left axis) Euro Area, in Bn. € (left axis) 0 500 1 000 1 500 2 000 2011 2012 2013

Global Liquidity Conditions

Sources: ECB; Bank of England; Federal Reserve.

Liquidity-Providing Operations in the Eurosystem

in Bn. €

Liquidity-Absorbing Operations in the Eurosystem

in Bn. € Monetary Base Deposit Excess Reserves Monetary Base Longer-Term Refinancing Operations UK, in Bn. £ (right axis) Asset Purchases Main Refinancing Operations

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01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present EUROPEAN UNION (15) Economic Situation good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present GERMANY Economic Situation good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013. SPAIN Economic Situation

by the end of the next 6 months at present good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present FRANCE Economic Situation good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

01 02 03 04 05 06 07 08 09 10 11 12 13

by the end of the next 6 months

Source: Ifo World Economic Survey (WES) III/2013. ITALY Economic Situation at present good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

UNITED KINGDOM Economic Situation

by the end of the next 6 months at present good/ better satisfactory/ about the same bad/ worse

e

uRopean

u

nion

Figure 5a

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01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

AUSTRIA Economic Situation by the end of the

next 6 months good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

FINLAND Economic Situation

by the end of the next 6 months good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

by the end of the next 6 months

Source: Ifo World Economic Survey (WES) III/2013.

at present PORTUGAL Economic Situation good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

DENMARK Economic Situation

at present

by the end of the next 6 months good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

NETHERLANDS Economic Situation by the end of the

next 6 months good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

SWEDEN Economic Situation

by the end of the next 6 months good/ better satisfactory/ about the same bad/ worse

Figure 5b

e

uRopean

u

nion

(15)

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013. USA Economic Situation by the end of the

next 6 months at present good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

AUSTRALIA Economic Situation

by the end of the next 6 months at present good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

RUSSIA Economic Situation

by the end of the next 6 months at present good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

CANADA Economic Situation at present good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

NEW ZEALAND Economic Situation

by the end of the next 6 months at present good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

UKRAINE Economic Situation at present good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

n

oRth

a

meRica

, o

ceania

and

ciS

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01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

CZECH REPUBLIC Economic Situation

by the end of the next 6 months at present good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present HUNGARY Economic Situation good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

SLOVAK REPUBLIC Economic Situation at present good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

ESTONIA Economic Situation

by the end of the next 6 months good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

POLAND Economic Situation

at present

by the end of the next 6 months good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

SLOVENIA Economic Situation

by the end of the next 6 months good/ better satisfactory/ about the same bad/ worse

e

aSteRn

e

uRope

Figure 7

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01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013. JAPAN Economic Situation at present good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013. INDIA Economic Situation by the end of the

next 6 months at present good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present SOUTH KOREA Economic Situation good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

CHINA P.R. Economic Situation

by the end of the next 6 months good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

by the end of the next 6 months

Source: Ifo World Economic Survey (WES) III/2013.

PHILIPPINES Economic Situation at present good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

TAIWAN R.O.C. Economic Situation by the end of the next 6 months good/ better satisfactory/ about the same bad/ worse

a

Sia

Figure 8

(18)

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

MEXICO Economic Situation

by the end of the next 6 months good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

BRAZIL Economic Situation by the end of the

next 6 months at present good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013. PERU Economic Situation

at present by the end of the next 6 months good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

ARGENTINA Economic Situation by the end of the

next 6 months good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

COLOMBIA Economic Situation by the end of the

next 6 months good/ better satisfactory/ about the same bad/ worse 01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present

VENEZUELA Economic Situation

by the end of the next 6 months good/ better satisfactory/ about the same bad/ worse

l

atin

a

meRica

Figure 9

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01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

NEAR EAST Economic Situation

Israel, Jordan, Kuwait, Lebanon, Qatar, Saudi Arabia, Syrian Arab Republic, Turkey, United Arab Emirates

good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

at present

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present TURKEY Economic Situation good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

UNITED ARAB EMIRATES Economic Situation at present good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present AFRICA Economic Situation good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

at present ISRAEL Economic Situation good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

01 02 03 04 05 06 07 08 09 10 11 12 13

Source: Ifo World Economic Survey (WES) III/2013.

SOUTH AFRICA Economic Situation good/ better satisfactory/ about the same bad/ worse

by the end of the next 6 months

at present

n

eaR

e

aSt

and

a

fRica

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is located above its long-term average of 84.9 (1997– 2012). In the majority of the countries in this region, including Israel, Jordan, Qatar, Saudi Arabia and the

United Arab Emirates, a favourable economic situation

prevails. In all of these countries the favourable eco-nomic conditions are likely to persist, except in Israel, where WES experts remain cautious with regard to future economic developments. In Kuwait, Lebanon and Turkey, the current economic situation was rated as satisfactory. The economic expectations for the next six months have indeed been scaled back, but remain in positive territory on the whole. In Syria economic performance was reported to be weak and is not expected to improve substantially over the next six months, as the civil war and the crisis look set to continue.

Africa: No unified economic trend

Countries in Africa display a highly differentiated pat-tern as far as the economic climate is concerned. Thus, an aggregated climate index for the countries surveyed by WES on this continent makes little sense, and the following analysis will focus on specific economic trends in the individual countries of Northern and

Sub-Saharan Africa.

The economic climate in the Northern African coun-tries covered by WES improved in comparison to the previous survey. In Egypt and Tunisia, however, the present economic situation is still rated as weak. The economic expectations of the experts surveyed remain cautious and don’t signal any major improvements over the next six months. In Algeria, Libya and Morocco the present economic situation is considered as satisfac-tory and the current good situation is likely to prevail for the next six months, according to WES experts. The economic climate indicator in South Africa de-teriorated further. More experts than in the previous survey rated the present economic situation as unfa-vourable. Economic expectations were also down-graded, and WES experts do not expect the situation to improve over the next six months (see Figure 10). In

Chad, Congo Dem. Republic, Ivory Coast, Lesotho and Sierra Leone WES experts view the present economic

situation as favourable, and to an even higher degree than in the previous survey. In all of these countries, WES experts retained their positive view of future economic developments over the next six months. In Zambia, assessments of the economic situation were downgraded

somewhat compared to April, but nevertheless remain good. In turn, the economic outlook is far less positive than in the previous survey and WES experts expect a deterioration of economic activity by the end of the next six months. In Angola, Benin, Congo-Brazzaville,

Ethiopia, Ghana, Kenya, Liberia, Mauritania, Namibia, Nigeria and Senegal, WES experts assessed the current

economic situation as satisfactory and expect it to stabi-lize at its present good level in the months ahead. In Comoros, Mauritius, Niger and Sudan, the pre-sent economic situation worsened compared to the previous survey and is rated as weak by economic ex-perts surveyed. No substantial economic improvement is expected in Mauritius and Sudan within the next six months. WES experts in Comoros and Niger, on the other hand, anticipate a slight upturn. In Burundi,

Madagascar, Swaziland, Togo and Zimbabwe a weak

economic performance was again reported by WES experts, despite a slight improvement compared to the survey in April. Except for Burundi and Madagascar, the six-month economic outlook is far more positive than in the previous survey and points to some improve-ment with regard to future economic developimprove-ments. In contrast, in Burundi and Madagascar the economic situation is expected to remain subdued over the next six months.

Different price trends

General trends

On a world-wide average, the WES experts’ inflation forecast for the year 2013 remained unchanged at 3.2% in July (see Table 4). The downward trend in inflation expectations is particularly pronounced in Western and Eastern Europe. Inflation expectations in Latin

America, on the other hand, continued to pick up.

Price trends by countries

The average inflation rate for the euro area in 2013 is forecast to be 1.7%, according to WES experts, after 1.9% expected in April and 2.1% at the beginning of the year. Within the euro area the lowest inflation rates in 2013 are again expected in the “crisis countries” of Greece (0.1%), Ireland (1.4%), Portugal (1.4%) and

Cyprus (1.0%). Euro area countries expected to have

above average inflation rates again include Estonia (3.3%), Slovakia and Slovenia (both 2.1%).

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In Western Europe outside the euro area the two ex-tremes of the presumable development of prices con-tinue to be Switzerland (0.2%) on the one hand, and the

United Kingdom (2.7%) on the other.

In Eastern Europe the inflation rate forecast for 2013 of 2.4% is significantly lower than that reported at the beginning of the year (3.3%). This tendency can be ob-served in all countries in the region. The lowest price increase will be seen, according to WES experts, in

Poland (1.5%), while the highest increase is expected in Serbia (9.8%).

In North America, the 2013 inflation forecast stands at 1.9%, with 2.0% in the United States and 1.5% for

Canada.

In Asia inflation expectations for 2013 increased slight-ly (from 3.1% to 3.2%). This was mainslight-ly due to higher inflation expectations in Indonesia (from 6.3% to 7.7%),

Singapore (from 3.0% to 3.5%) and Hong Kong (from

3.4% to 3.7%). In most other Asian countries inflation expectations were revised slightly downwards, namely in China (from 3.4% to 3.1%), South Korea (from 2.8% to 2.2%), Taiwan (from 1.7% to 1.5%) and Thailand (from 3.4% to 3.2%). According to WES experts by far the highest inflation rates in the region will con-tinue to prevail in Pakistan (9.6%). In Sri Lanka (9.1%),

Indonesia (7.7%), Bangladesh (7.6%), India (7.0%) and Vietnam (6.7%) the expected inflation rate in 2013 will

again be significantly higher than the regional aver-age. In Japan, despite very aggressive monetary policy aimed at fighting deflation and stimulating growth, the inflation outlook for 2013 remained at 0.4%, and thus still well below the 2% inflation target set by the newly elected government.

In Oceania inflation expectations for 2013 declined somewhat from 2.5% to 2.4%. In Australia they fell from 2.6% to 2.5% and in New Zealand they were un-changed (1.7%).

In Latin America inflation expectations for this year picked up further from 7.7% at the beginning of the year and 7.9% in the April survey up to 8.5% in July. The countries with the worst inflation outlook in the region are still Argentina (27.0%) and to an even greater degree

Venezuela (38.3%). On the other hand, countries with

inflation rates significantly below the regional aver-age again look set to include El Salvador (1.8%), Chile (2.4%), Colombia (2.8%) and Peru (2.6%). In Brazil, the largest country in the region, an inflation rate of 6.2%

Table 1

Supply of bank credit to firms, extent of constraint Not constrained Canada 8.4 Guatemala 8.2 Australia 8.0 Hong Kong 7.9 Chile 7.8 Japan 7.8 Paraguay 7.5 Colombia 7.4 Namibia 7.4 Philippines 7.4 New Zealand 7.3 Switzerland 7.1 Germany 7.0 Peru 7.0 Moderately constrained Czech Republic 6.9 Brazil 6.8 Pakistan 6.8 Lithuania 6.7 Uruguay 6.7 Taiwan 6.5 Thailand 6.5 Austria 6.3

Bosnia and Herzegovina 6.3

Mexico 6.2 South Africa 6.2 United States 6.2 Malaysia 6.1 Slovakia 6.1 Sweden 6.1 Israel 6.0 Turkey 6.0 France 5.9 Bolivia 5.8 Zambia 5.8 Argentina 5.6 Croatia 5.6 India 5.6 Sri Lanka 5.5 South Korea 5.4 Finland 5.3 Bulgaria 5.2 Denmark 5.0 Indonesia 5.0 Kazakhstan 5.0 Kenya 5.0 Latvia 5.0 Madagascar 5.0 Russian Federation 4.9 Poland 4.8 Belgium 4.6

Congo Dem. Rep. 4.2

Nigeria 4.2 Serbia 4.2 Netherlands 4.1 Egypt 4.0 Strongly constrained Hungary 3.9 China 3.3 Albania 3.2 United Kingdom 3.2 Ukraine 3.0 Italy 2.8 Ireland 2.7 Portugal 2.3 Romania 2.0 Zimbabwe 2.0 Spain 1.7 Slovenia 1.4 Greece 1.0

Only countries with more than four responses were included in the analysis.

WES scale: 9 – not-, 5 – moderately-, 1 – strongly constrained

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is now expected for 2013, which is somewhat higher than forecast at the beginning of the year (5.6%) and in April (5.9%).

In CIS countries inflation expectations for 2013 in-creased somewhat and now stand at 8.1% (versus 8.0% in April). The inflation rate will be lower than the gional average in the Ukraine (4.7%). Close to the re-gional average is the expected inflation rate in Russia (7.6% after a forecast 7.1% in April) and in Kazakhstan (6.6% after a forecast 7.1% in April). The inflation rate in Uzbekistan (16.5%), on the other hand, looks set to remain above the regional average in 2013.

In the Near East inflation expectations for 2013 re-mained unchanged at 4.3%. Within the region, inflation expectations continue to be rather subdued in the United

Arab Emirates (2.2%) and Israel (2.1%). In Saudi Arabia

the 2013 inflation rate will – according to WES experts – amount to 4.3%, which would be somewhat lower than the inflation estimates of the last two quarters (5.3%). In

Turkey inflation expectations for 2013 were significantly

upwardly revised (from 6.8% in April to 7.6% in July). In Africa price trends remain very heterogeneous. Relatively low inflation rates (below 4%) for 2013 are expected again in Congo Dem. Republic (2.7%),

Congo-Brazzaville Rep. and Morocco (both 3.0%). The

infla-tion expectainfla-tions for 2013 for the majority of coun-tries covered in the survey like Benin (4.0%), Algeria (4.2%), Tunisia (5.2%), Lesotho (5.9%), Namibia (6.2%),

South Africa (6.2%), Kenya (6.6), Swaziland (6.7%) and Mauritania (7.0%) lie in a medium inflation bracket

(be-tween 4 and 9%). High inflation rates of 10% or more should also continue to predominate in 2013, particu-larly in the Sudan (38.8%), Malawi (30.0%) as well as

Burundi (21.0%). To a lesser degree, Nigeria (10.4%), Egypt (10.5%) and Sierra Leone (10.8%) also belong to

the high inflation countries in Africa. US Dollar expected to rise

On a world-wide scale the US dollar and the yen are seen by WES experts – like in the preceding survey –as very close to their fundamentally appropriate values, where-as the euro and the British pound continue to be judged as overvalued (see Figure 11). However, big differences in currency evaluation remain by country: WES ex-perts assessed their own currencies as generally under-valued in the United States of America, in Russia, in some Eastern European countries like Czech Republic, Table 2

Legal and administrative restrictions for foreign firms

Absent Sweden 8.3 Finland 7.2 Chile 7.0 Peru 7.0 Rather low Turkey 6.8 Ireland 6.7 Lithuania 6.7 Denmark 6.6 Germany 6.5 Uruguay 6.5 Netherlands 6.4 Slovakia 6.4 Mexico 6.2 Switzerland 6.2 Czech Republic 6.1 Australia 6.0 Poland 6.0 Paraguay 5.9 United States 5.9 Guatemala 5.8 Philippines 5.8 New Zealand 5.7 Portugal 5.7 United Kingdom 5.7 Canada 5.6 Latvia 5.6 Austria 5.5 Colombia 5.5 Spain 5.5 South Korea 5.4 Belgium 5.2 Bulgaria 5.2

Congo Dem. Rep. 5.0

Hong Kong 5.0 Japan 5.0 Kazakhstan 5.0 Kenya 5.0 Madagascar 5.0 Namibia 5.0 Nigeria 5.0 Romania 5.0 Serbia 5.0 Slovenia 5.0 Greece 4.7 Hungary 4.7 India 4.7 South Africa 4.7 Pakistan 4.6 France 4.4 Malaysia 4.4 Brazil 4.3 Taiwan 4.3 Zambia 4.2 Italy 4.1 Israel 4.0 Rather high Croatia 3.9 Albania 3.7 China 3.7 Sri Lanka 3.5 Thailand 3.5 Egypt 3.0 Russian Federation 2.5 Bolivia 2.3

Bosnia and Herzegovina 2.3

Ukraine 2.0

Indonesia 1.7

Zimbabwe 1.5

Argentina 1.3

Only countries with more than four responses were included in the analysis. WES scale: 9 - absent, 5 - low, 1 – high Source: Ifo World Economic Survey (WES) III/2013.

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Table 3

Assessment of the following factors influencing the climate for foreign investors in the next six months Climate due to Change for the next six months *

Deterioration Improvement

Legal/administrative restrictions to invest and/or to repatriate profits Argentina, Zambia Mexico, Zimbabwe Croatia, Greece,

Political stability Argentina, Hong Kong, Madagascar, Nigeria,

Thailand, Ukraine, Zambia

Albania, Australia, Ireland, Paraguay, Uruguay

* For the countries that are not mentioned in the table, no major changes relating to the climate for foreign investors are ex-pected during the next six months. Only countries with more than four responses were included in the analysis.

Criteria for selection of countries: Deterioration: WES grade between 1.0 and 3.5 Improvement: WES grade between 6.0 and 9.0

Source: Ifo World Economic Survey (WES) III/2013.

Hungary and Poland, and in some countries in Africa

like Nigeria and Sierra Leone. An undervaluation of the domestic currency was also reported again in some

Asian countries like India and the Philippines, but also

for the first time in a long while in Japan.

By contrast, experts regard their own currency as gen-erally overvalued in Malaysia, Kenya, some Latin

American countries like Venezuela, Argentina and Uruguay, as well as in Serbia and in Armenia.

The answers to a supplementary survey question on the likely development of the US dollar in the next six months, regardless of how currencies are assessed from a fundamental point of view, signal – to an even greater degree that the preceding survey – an increase in the value of the US dollar over the next six months on a worldwide average, particularly in Latin America, the

euro area and Australia.

On the other hand, the US dollar is expected to weaken – to a lesser de-gree than in the preceding survey – in the Asian countries of China and the Republic Korea, some Eastern

European countries like Hungary, Latvia as well as Poland, in a few African countries (Swaziland,

the Comoros and Liberia), and in

Latin America only in Bolivia.

More WES experts expect an increase in long-term interest rates over the next six months On a worldwide scale, short-term interest rates are no longer expect-ed to shrink further, but are now seen as on the verge of a moderate uptick over the next six months. The expected upward trend in long-term interest rates has even gained momentum. Most pronounced is the upward trend of in-terest rate expectations – for long-term, but also for short-term interest rates – in the United States and in Brazil. The few exceptions, where the expected trend of inter-est rates in the coming six months is pointing down-wards are some Asian countries like India, Sri Lanka and Vietnam, some Eastern European countries like

Slovakia, Hungary and Poland, as well as Sierra Leone

in Africa and finally Australia, although the trend only applies to short-term rates in the latter.

Stable short and long-term interest rates are expected in the second half of the year in CIS countries, with the ex-ception of Kazakhstan, where both types of interest rates are expected to increase in the months ahead.

1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Assessment points EVALUATION OFCURRENCIES

Source: Ifo World Economic Survey (WES) III/2013.

USD DM/EUR JPY GBP overvalued propertly valued undervalued 9 = overvalued 5 = at about proper value 1 = undervalued

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Referenzen

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